This article has been commissioned by the Association of Bonded Travel Organisers Trust (ABTOT). ABTOT is a Travel Trade Association that was established in 1993 to help travel organisers comply with the Package Travel Regulations. ABTOT, who have over 170 members comprising mainly of small to medium sized specialist travel operators, have instructed niche travel law firm Travlaw LLP to provide advice in relation to the implications of Brexit on their members and the travel industry at large. This article is the first in a series of Brexit related articles in the countdown to the UK’s departure from the EU on 28/03/2019.
Independence Day – 23rdJune 2016
In June 2016 the British public voted to leave the EU by a slender majority of 51.9% to 48.1%. Key figures in the travel industry made no secret of their lack of love for Brexit from the outset. Richard Branson of Virgin Atlantic (1), for example, described a Brexit outcome as one that would bring about ‘the saddest day’ for Britain. By contrast, Nigel Farage hailed the result as a ‘victory for real people’ and all but declared the 23rdJune 2016 as the UK’s Independence Day (2).
Two Years Later
Two years later and, Ryanair, who campaigned in favour of a Remain vote (3), continue to raise the alarm over the ‘continuing uncertainty’ over Brexit (4). As we approach the current deadline to leave the EU on 29/03/19, uncertainty remains a concern shared by other airlines and travel industry leaders due to the lack of progress towards agreements on ‘key issues’ (5). However, with over 4300 (6) travel agents and tour operator enterprises in the UK, the impact on the travel industry goes well beyond household names such as Ryanair, Easyjet and their ability to maintain ‘bargain basement’ flights to Europe. Putting aside the travel giants of Thomas Cook and TUI, 3100 (7) or so travel companies anxiously await the outcome of the ‘Brexit Deal’ negotiations. Without the financial clout of the ‘travel giants’, it remains to be see whether these small to medium sized travel companies will be suitably equipped or prepared to ‘ride the Brexit storm’ come ‘Brexit Day’ (whether that be 29/03/18 or otherwise!).
Introducing the Association of Bonded Travel Organisers Trust (ABTOT)
Whilst eminent figures such as Richard Branson and Michael O’Leary are likely to continue to dominate the headlines as the Brexit saga unfolds, ABTOT have been canvassing its members seeking to both understand their concerns and how ABTOT may be able to speak collectively for them.
The travel industry are already taking bookings for holidays that will commence in the post-Brexit era, and with so many possible outcomes on the terms of the UK’s relationship with the EU come 29/03/19, it is of little surprise there is a real concern over the uncertainty that the travel industry is currently faced with. As we move ever closer to the Brexit deadline of 29/03/19, with no ‘Brexit Deal’ in sight and amidst growing concerns from their members, ABTOT recently felt compelled to take action.
ABTOT Survey – August 2018
ABTOT distributed a survey in August 2018 to their 170+ members to canvass their views on the potential impact of Brexit to their business. Unlike the slender margin in favour of Brexit given by the electorate in June 2016, the ABTOT survey reveals a clear consensus amongst the travel industry when it comes to Brexit. The perception of Brexit from ABTOT members is a far cry from the ‘land of opportunity’ (8) often promised by the Brexiteers.
ABTOT Members were asked how concerned they were on a scale of 1 to 10 (10 being the most concerned) as to the potential implications of Brexit on a variety of key issues. Or to use the words of Les Dennis, “we asked 173 travel companies what they thought of Brexit. And our survey says…..”
|Issues Surrounding Brexit||Average Score (1-10)|
|1 Exchange Rates||7.7|
|2 The Impact Generally||7.4|
|3 Falling Out of the Open Skies Agreement||5.9|
|4 Restrictions on the Free Movement of Staff||5.9|
|5 Restrictions on the Free Movement of Tourists||5.5|
|6 Ability to Establish a Business in the EU||4.2|
Economics Tops the List
The biggest concern raised by ABTOT members relates specifically to exchange rates. Aside from an average ‘concern score’ of 7.7 (10 being the most concerned), almost 50% of those surveyed marked out the maximum score of 10 out of 10! In addition to exchange rates, the view of many is that a poor economic outlook generally is likely to have a negative impact on demand and sales. However, fortunately, there is little a travel lawyer dare comment or advise upon on when it comes to economic issues.
The Open Skies Agreement
The Open Skies Agreement liberalises rules and regulations covering more than just flights between EU countries. It also covers flights between the EU and the USA. The significance of this is amplified when one appreciates the ‘airspace’ covered by the Agreement is not limited to ‘land borders’; take France for example whose airspace stretches out way out to the West in to the Atlantic Ocean (9).
EU airspace is an obvious obstacle for any airlines operating flights out of the UK to the East or West and, with Ireland guarding part of the UK’s outlet to the West, the Irish Prime Minister, Leo Varadkar, has threatened to ban British airlines from Ireland’s airspace (10). Scotland, having control of their own airspace, could complicate the situation even further should a second Scottish referendum for independence ever materialise. All of this may create the impression that Brexit has the potential to leave British airlines with little if anywhere left on the globe that they can fly to freely, other than possibly Iceland. Better judgement suggests that, in particular with the UK’s historical ties to Ireland, such hostilities materialising are unlikely. Either way, with flights over EU and US airspace being an essential ingredient of such a vast number of business and leisure trips, it is no surprise that this topic features regularly in the press.
Extended press coverage, however, does not necessarily yield much in the way of reassurance or certainty. This is reflected in the results of the ABTOT survey. When members were asked to rate their concerns over the UK falling out of the Open Skies Agreement this provoked a score of 5.9 out of 10 (10 being the most concerned). Although up to 25% of those surveyed marked a panic stricken maximum score of 10 of 10, by contrast around 13% of members expressed no concerns whatsoever by marking a fearless score of 1 of 10 and with one member commenting boldly that ‘flight bans/open skies implications are never going to be an issue’.
Diverse opinion on the matter should perhaps come of little surprise when the public are subject to so many polarised views. Whereas the Transport Secretary, Chris Grayling, predictably tows the party line with the bullish expectation that he is as ‘confident as ever’that ‘we will have a sensible arrangement with the European Union (11)’, Ryanair, meanwhile, warned investors of a ‘distinct possibility that flights between the UK and the EU could be grounded from the moment of Brexit for an unknown period of time’ (12). The Irish Prime Minister fanning the flames with alarmist comments such as ‘If there was a no-deal hard Brexit next March, the planes would not fly and Britain would be an island in many ways’ (13).
Free Movement of Workers
Much has been said in the media as to the free movement of workers into the UK post-Brexit with reports of Theresa May looking for cabinet approval to implement what has been described as a ‘restrictive immigration policy’ with emphasis on ‘low skilled workers’ (14). Less has been said in the media, however, as to the free movement of workers from the UK to the EU. This is perhaps surprising given that according to the Business Secretary, Greg Clark, ‘restricting the ability of British workers to travel within the EU could be as dangerous to the economy as a hard trade border’ (15). The assumption, of course, would be that if the UK implements a policy that restricts EU workers coming in to the UK, the EU will respond in kind. Is the typical ‘holiday rep’ deployed by UK travel companies in the EU likely to pass the criteria for ‘skilled workers’?
At first blush, anxieties amongst ABTOT members over the ability for UK travel companies to deploy staff in other EU countries carry a moderate score of 5.9 out of 10 (10 being the most concerned). However, on closer interrogation of the results, comes a realisation that almost a quarter of those surveyed are entirely UK based, i.e. if you do not deploy staff abroad there is nothing to be concerned about! With that factored in to the equation, we come to an adjusted score of 7.3 out of 10 – with over 40% of those members marking the maximum score of 10 of 10! This puts concern over the free movement of workers almost on a par with those concerns expressed over exchange rates. Some ABTOT members that are particularly concerned commented as follows:
It’s terrible! We employ British staff in France so how will we do that in the future? If unable to do so massive cost increases and an issue of language for our customers
The most important issue for us is the posting of seasonal workers to Europe in the summer. If this is not possible it will have serious implications for us.
The ability for directors/staff to operate freely in Europe. Potentially, this will kill our business. We are investigating alternatives such as alternative citizenship and relocating our business out of the UK.
Also of note is the concern of one member as to the ‘ability to recruit staff from the EU’, rather than the ability to post permanent or seasonal workers to resorts in the EU.
Evidently, the free movement of tourists and workers is one of the most pressing issues raised by ABTOT members. I have spoken to a number of members, to whom I am grateful, to better understand their concerns, in particular in relation to concerns over the free movement of workers with several members making reference to the ‘Posted Workers Directive’. This is a topic Travlaw LLP hope to cover in a further article to try to offer some clarity to the travel industry on these issues over the coming weeks.
Ability to Establish a Business in the EU
Bottom of the list, scoring a humble 4.2 (10 being the most concerned), comes those ABTOT members concerned by restrictions on the ability to setup in other EU countries. However, as always, bare statistics and average scores do not tell the full picture.
Just as we found with members concerned by the ability to deploy staff in the EU, when you account for the fact that a sizeable share of the members both, a) have no presence in other EU countries and, b) have no intention to do so, the adjusted score rises to around 6.3. However, this is propped up by the 22% or so members that marked a maximum score of either 9 or 10 out of 10 (10 being the most concerned) whilst simultaneously being pulled back down by the 45% or so members that indicated, with fearless scores of 1 or 2, that they have ‘no concerns whatsoever’.
The likely conclusion here being, those that are not affected by the ability to setup shop in other EU counties understandably have no concerns at all, whereas those that are affected are seemingly terrified.
The Tour Operator Margin Scheme (TOMS)
Aside from rating their concerns on specific issues on a scale of 1-10, ABTOT members were also given a blank canvass to voice their concerns. Featuring highly in the comments provided are concerns over the potential VAT implications post-Brexit.
The Tour Operator Margin Scheme (TOMS) was introduced in 1988, as a simplification for EU vendors of travel, and is governed by the VAT Act 1994 and the VAT (Tour Operators) Order 1987 (16). The simplification offered is the ability to avoid the need to identify, understand and comply with the respective VAT regimes of each country that a travel company intends to supply services to. Few would agree that TOMS is a ‘simple regime’; however the bottom line is that the absence of TOMS post-Brexit would probably mean that travel companies would need to register for VAT in multiple EU countries, whilst navigating the VAT compliance rules of each country (17).
To complicate the situation further, in February 2018 the Court of Justice of the European Union (CJEU) found two key errors in Germany’s operation of the Tour Operators’ Margin Scheme (TOMS) (18). The UK uses a similar approach to Germany in both areas so some commentators fear that this decision could have a negative impact on UK based tour operators (19). Compounded by the uncertainty as to how and when the UK will finally leave the EU, for how long the CJEU will reign supreme and whether HMRC will change its TOMS rules, the risk of adverse changes to TOMS may well hang over the travel industry for a number of years (20). As one concerned ABTOT member put it:
The biggest issue will be the payment of VAT as we are in TOMS and we are not charged VAT by French Suppliers. If we can’t claim the VAT back then our costs and prices will have to rise by 20%. We may not be able to sustain these price rises. We are having to price next year without any information. We need immediate guidance.
However, fear not, for on 23/08/18 the government released a Technical Guidance Notice titled‘VAT for businesses if there’s no Brexit deal’, the relevant parts of which can be extracted in their entirety as follows:
The Tour Operators Margin Scheme is an EU VAT accounting scheme for businesses that buy and sell on certain travel services that take place in the EU. HMRC has been engaging with the travel industry and will continue to work with businesses to minimise any impact (21).
Clearly, therefore, there is nothing to be concerned about. Not only have the government recently announced reassurance that they are confident that they will reach a Brexit deal, but they are also ‘fully prepared in case no agreement is possible’ (22)– as can be clearly demonstrated by the Technical Guidance note above.
Marketing Services to other EU Countries
Although based in the UK, one concerned member explains that his business relies on the ability to market African safari packages to multiple EU countries including France, Belgium, Switzerland, Germany and others. Will it be business as always post-Brexit? Will other EU countries be able to refuse marketing into their territory, incentivised by an opportunity to enable their local competitors to fill a gap in the market? Will the ability to market into the EU remain but at the expense of endless compliance issues whilst incurring costs that eat into slim profit margins compounded by other factors?
The cause for concern is obvious with the government seeking to preserve the free movement of goods and retain special treatment on services for ‘financial services’ and ‘digital’ only, the natural conclusion of that being that ‘any other services’, such as travel services, are the likely to the biggest losers in any deal likely to be reached. And what if no deal is reached? What if anything do the default World Trade Organisation Rules (WTO Rules) do to assist?
This is a topic that Travlaw LLP hope to cover in more detail over the coming weeks. Unfortunately, however, right now there are far more questions than answers.
Other Issues Raised By Members
When provided with a blank canvas to voice their concerns, and having spoken to a number of ABTOT members, a number of other comments were voiced such as:
“Ultimately it is going to result in higher prices for the consumer”
“Already there are problems with domestic service sector in finding enough staff. The list is endless…..”
“France are already ‘pushing the limits’ as to how they can target UK travel companies on the back of the Leave Vote, and we have not even left yet’”
“Will other EU countries force upon us the cost and logistical burden of instructing companies to administer payroll for our employees in their countries and subject to their local Tax/Social Contributions?
Political Timeline: The Possible Brexit Outcomes
Let us now consider the possible outcomes of the Brexit process come 29/03/19 (23).
Outcome A– The government reach a deal with the EU at the next EU Summit on 18/10/19. Most likely, with a ‘transitional period’ from 29/03/19 to 31/12/20 (24) during which time it is anticipated that it will largely be ‘business as normal’
Outcome B– The government fail to reach a deal with the EU on 18/10/19, but eventually reach a deal at an ‘emergency summit’ thereafter and before leaving the EU on 29/03/19
Outcome C– The government fail to reach a deal with the EU before 29/03/19 but, with the approval of all 28 EU Member States, an extension of time is granted.
Outcome D– The government fail to reach a deal with the EU before 29/03/19 and ‘crash out’ of the EU in what is often described as a ‘cliff edge Brexit’ where the UK reverts to WTO Rules (World Trade Organisation) as the basis for their relationship with the EU thereafter
Outcome E – The government finally yield to calls for a second referendum. No doubt met with open arms by the Remain camp, including London Mayor Sadiq Khan (25), and cheered as ‘democracy in force’ to be able to ‘change one’s mind’, whilst simultaneously branded as treachery and an affront to democracy by the Brexiteers (26) for subverting the original referendum in June 2016.
With so many permutations in play, it is no wonder that ABTOT members and the travel industry at large remain anxious over the Britain’s future relationship with the EU. Despite the Government’s White Paper released in July 2018 (27), and an ongoing series of Technical Guidance Notices as to the possible impact of a ‘No Deal’ scenario, the only things that are clear to ABTOT members and the travel industry at large right now are that:
- It is unclear if or when a deal will be reached with the EU,
- It is unclear what the government’s intentions and expectations are in respect of travel services provided by UK businesses as part of the negotiation process with the EU
- It is unclear what the full implications will be on the travel industry in the event of a ‘no deal scenario’
ABTOT asked their members, on a scale of 1-10, to what extent did they feel that the potential implications of Brexit on their business had been made clear to them by the government/any government institutions (10 being extremely clear, 1 being not clear at all). The average score came out at a damning 2.2! Some ABTOT members specifically turned to their politicians for guidance and answers when invited to provide additional comments:
“The Government, or should that be, the politicians, will simply move on, disaster or not. I can’t see my MP offering to help us out of the hole!”
“Loss of the Posted Worker Directive General knowledge vacuum as the negotiations limp from one disastrous fudge to the next”
With that in mind, we turned to our political leaders for comment.
Invitation For Comment from the Brexit Secretaries
With the government obviously at the fore of the negotiation process, on 31/08/18 Travlaw LLP wrote to both the Brexit Secretary, Dominic Raab, and the Shadow Brexit Secretary, Sir Keir Starmer. We succinctly outlined the concerns raised by ABTOT members and invited a discussion on these issues. Failing an agreement to discuss these issues openly, one had anticipated at the very least a letter from the Brexit Secretary offering reassurances of a great deal being reached, that all the interests of travel industry members would be protected etc. To date, however, no response has been received from the Brexit Secretary. We have, however, received a (somewhat curt) response from the office of Sir Keir Starmer which shouldn’t take up too much space on this page:
“Apologies as we are not currently able to arrange a meeting at the moment due to diary constraints. Thank you once again for getting in touch.”
With over £25 Billion worth of expenditure estimated under ‘UK Outbound Tourism’ (28) for 2017, and 72.8 million visits overseas by UK residents in 2017 (29), a reply from the Brexit Secretary is anticipated in earnest.
Watch This Space
Right now there are probably more questions than answers. However, over the coming weeks the team here at Travlaw LLP hope to cover some of the topics touched upon in this article in more detail and, where possible, to provide advice to anyone in the travel industry affected by the ongoing Brexit uncertainty.
If you are concerned by the possible impact of Brexit on your business, or if you have any other comments in relation to this article, please get in touch at the e-mail address below.
Nick Parkinson, Solicitor of Travlaw LLP
This article has been commissioned by the Association of Bonded Travel Organisers Trust (ABTOT). The Association of Bonded Travel Organisers Trust Limited (ABTOT) is a Travel Trade Association established in 1993 to help travel organisers comply with the Package Travel Regulations (PTRs). With over 170 members, comprising mainly small to medium sized specialist operators, ABTOT is approved and regulated by The Department for Business, Energy and Industrial Strategy (BEIS), the government department responsible for the implementation of the amended PTRs in 2018 and for their enforcement. ABTOT is also an approved CAA franchisee and liaises regularly with both the CAA and BEIS regarding industry and regulatory matters which impact its members.
Travlaw LLP is a full service, niche travel law firm providing advice on regulatory work, litigation, commercial, employment law and intellectual property all specifically tailored to meet the needs of the travel industry.
An edited version of this article was published on the Travel Weekly website on Oct 17th 2018: http://www.travelweekly.co.uk/articles/314113/comment-industry-survey-reveals-brexit-concerns